Periodic Reporting for period 4 - MaMiLabor (Macro- and Microeconomic Analyses of Heterogeneous Labor Market Outcomes)
Reporting period: 2023-09-01 to 2024-04-30
This project analyzes labor markets from both a macro- and a microeconomic perspective. Its subprojects have the common objective to significantly advance our understanding of heterogeneities in labor market behavior and outcomes, both across and within countries.
The project resulted in seven scientific publications. Its results were presented a numerous seminars and conferences, including keynote addresses and a presentation at the 2022 Jackson Hole Symposium. The results were also covered by newspaper articles and presented to policy makers and the general audience. These are the most important project results:
(i) Hours worked per person decrease significantly as countries grow richer. We show that structural change in labor supply – namely the transition from subsistence self-employment to market work, and the decrease in fixed costs of market work - is a key driver of hours worked differences across countries. Structural change in labor supply generates convexity in the employment rate and concavity in hours per worker over the development spectrum, as observed in the data. The subproject establishes that structural change in labor supply is of quantitative importance to explain lower hours worked in richer countries, and matters for the prediction of future hours.
(ii) The Covid epidemic led to unprecedented losses of schooling time worldwide. Based on a structural model, we analyze the expected long-term consequences of the school closures on the human capital, earnings, and ultimately welfare of the affected children. At the core of the model is a human capital production function, which features both parental and governmental inputs in the human capital of children. We find that one year of school closures are associated with life-time earnings losses of around -2%, and welfare losses of around -1% in terms of the consumption equivalent variation. This is the case despite parents reacting optimally to the school closures by increasing their own investment into their children. We document substantial heterogeneity in the effects depending on parental background. We also document the extent of school closures in the US and in Germany.
(iii) We provide new evidence of forward-looking labor supply responses to changes in pension wealth. We exploit a 2014 German reform that increased pension wealth for mothers by an average of 4.4% per child born before January 1, 1992. Using administrative data on the universe of working histories, we implement a difference-in-differences design comparing women who had their first child before versus after January 1, 1992. We document significant reductions in labor earnings, driven by intensive margin responses. Our estimates imply that, on average, an extra euro of pension wealth in a given period reduces unconditional labor earnings by 54 cents.
(iv) The fall of Communism in Eastern Europe changed labor markets drastically. We analyze the developments of labor market outcomes in Eastern Europe after the Fall of Communism. We find significant convergence of behavior and preferences, except in the area of female labor supply. Focusing on Germany, we find convergence in preferences for redistribution between East and West Germany in the first decade after reunification, but no significant convergence later on.
(v) An increasing female share in an occupation is associated with lower relative wages in this occupation. We show that there is a causal effect of the female share on wages exploiting the natural experiment of German reunification.
(i) Hours worked per person decrease significantly as countries grow richer. We show that structural change in labor supply – namely the transition from subsistence self-employment to market work, and the decrease in fixed costs of market work - is a key driver of hours worked differences across countries. Structural change in labor supply generates convexity in the employment rate and concavity in hours per worker over the development spectrum, as observed in the data. The subproject establishes that structural change in labor supply is of quantitative importance to explain lower hours worked in richer countries, and matters for the prediction of future hours.
(ii) The Covid epidemic led to unprecedented losses of schooling time worldwide. Based on a structural model, we analyze the expected long-term consequences of the school closures on the human capital, earnings, and ultimately welfare of the affected children. At the core of the model is a human capital production function, which features both parental and governmental inputs in the human capital of children. We find that one year of school closures are associated with life-time earnings losses of around -2%, and welfare losses of around -1% in terms of the consumption equivalent variation. This is the case despite parents reacting optimally to the school closures by increasing their own investment into their children. We document substantial heterogeneity in the effects depending on parental background. We also document the extent of school closures in the US and in Germany.
(iii) We provide new evidence of forward-looking labor supply responses to changes in pension wealth. We exploit a 2014 German reform that increased pension wealth for mothers by an average of 4.4% per child born before January 1, 1992. Using administrative data on the universe of working histories, we implement a difference-in-differences design comparing women who had their first child before versus after January 1, 1992. We document significant reductions in labor earnings, driven by intensive margin responses. Our estimates imply that, on average, an extra euro of pension wealth in a given period reduces unconditional labor earnings by 54 cents.
(iv) The fall of Communism in Eastern Europe changed labor markets drastically. We analyze the developments of labor market outcomes in Eastern Europe after the Fall of Communism. We find significant convergence of behavior and preferences, except in the area of female labor supply. Focusing on Germany, we find convergence in preferences for redistribution between East and West Germany in the first decade after reunification, but no significant convergence later on.
(v) An increasing female share in an occupation is associated with lower relative wages in this occupation. We show that there is a causal effect of the female share on wages exploiting the natural experiment of German reunification.
We are the first to show that long-term trends in hours worked in richer countries line up well with cross-country trends across the development spectrum, and to provide a unified explanation for trends in hours worked per person, employment rates, and hours worked per employee as countries grow richer. The Covid-induced school closures affected children worldwide, but nothing was known about their potential long-run effects on children. Clearly, empirical work can only address this question as time goes on. We put out estimates for the likely long-term effects of the school closures on the labor market outcome of affected children based on a structural model. Our research thereby contributed substantially to analyzing the economic effects of the Covid crisis.